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Regulating a Manager‐controlled Natural Monopoly with Unknown Costs

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  • Ismail Saglam

Abstract

We study the regulation of a manager‐controlled natural monopoly with unknown costs, borrowing from Baron and Myerson (BM) (1982), where the monopoly is controlled by the owner. We consider the case where the regulator can tax the owner as well as the case where she cannot. We find that the optimal price schedule generally lies below the one in the BM model and that it can be as low as the marginal cost if the compensation parameter is sufficiently small and the regulator cannot tax the monopoly owner. We also identify the cases where the monopoly owner prefers to delegate the control to a manager. Copyright © 2016 John Wiley & Sons, Ltd.

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  • Ismail Saglam, 2017. "Regulating a Manager‐controlled Natural Monopoly with Unknown Costs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(6), pages 792-805, September.
    • Handle: RePEc:wly:mgtdec:v:38:y:2017:i:6:p:792-805
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